The economics of tithing and charitable giving

I recently gave an interview on a national radio program. The topic? Tithing. That’s right, tithing. The interviewers were looking for a financial planner’s take on the subject. And as a financial planner in Utah, they figured I deal with the issue regularly. But let’s be clear I spoke (and write today) as a financial planner and not as a spokesman for either Deseret Mutual or The Church of Jesus Christ of Latter-day Saints. These observations are my own.

First, I will say it’s my observation that generally people who give seem to prosper. Call it blessings, call it karma, call it what you like. Although those people who give don’t always “hit the jackpot” financially, they seem to get by well enough and feel rewarded for sharing.

In the interview, I was asked everything from, “What is tithing and what is it used for?” to “What questions do people ask their financial planner about tithing?” For the former question, I’m assuming you either know the answer or can ask a tithe-paying friend. For the latter, the answers can range from the simple to potentially complex, as you’ll see. It’s more difficult to answer questions like, “Do I pay on gross or net?” or “How do I account for what I’ve already counted as tithing and what I have not?” or “Should I pay on Social Security benefits and retirement accounts like 401(k)?”

Of course, many religious organizations encourage tithing (simply Google the word tithing and you’ll get nearly 3 million results). And though the specifics may differ from denomination to denomination, the intent is clear — to give. The LDS Church teaches that individuals are encouraged to give 10 percent of their income or "increase."

As a financial planner, I’m sometimes asked whether tithing should be paid on what the individual receives in gross income or the net amount after benefits and taxes have been paid. We sometimes joke in the office that we’re going to create a tithing calculator to help people figure this out. The only problem with our invention? The individual must supply the income number and our calculator would simply multiply it by 10 percent. Of course, this doesn’t seem very helpful if you’re trying to decide which "income" number to use.

And here’s where it gets tricky. It’s absolutely up to the individual to determine what they deem as an "increase." What do they have now that they didn’t have before? I don’t have an answer. But I try to lead them on a path of self discovery to determine what they believe is a full tithe. Interestingly, most people seem to gravitate to paying tithing on their gross income because they decide that benefits and taxes, even if indirectly, will help them. They also typically find that money they’ve saved for retirement will eventually help them.

And now we come to the second dilemma. Later in life, one may be faced with deciding what has and what hasn’t been tithed. I’ve seen people who have kept detailed records showing what they’ve contributed over the years. But I’ve also seen some people who don’t want to deal with the accounting so they simply contribute full tithing coming out of retirement accounts like 401(k)s. I suppose those people assume any possible repercussions of poor accounting will be overcome by generous giving. I tend to agree.

Some Christian and philanthropic groups suggest a four-part simplified map to success. Save, invest, give (or donate) and spend. If you’re like me — or most people — spending isn’t a problem. But it’s notable that “save,” “invest” and “give” come before “spend.”

“Saving” would be for short-term goals and emergencies — usually saved in a local bank or credit union. “Investing" would be for long-term goals and could include plans like your work-sponsored 401(k) or an individual retirement account (IRA). And “giving” refers to any kind of charitable giving. That’s certainly where tithing fits. Then you can spend what’s left, if any.

No matter how you calculate charitable giving, it’s always fulfilling. I see great wisdom in — and recommend —this four-part approach.